Spain formally asks Eurogroup for bank aid

Because of the huge news day we had yesterday, Spain asking for bailout got lost amongst the chaos.  Make no mistake:  This is a big story.  CNN Money via The Extinction Protocol.  Post:

June 25, 2012 – SPAIN - The Spanish government made a formal request to the Eurogroup on Monday for up to €62 billion ($77 billion) in financial aid for its troubled banking sector. “I have the honor to write to you, in the name of the Spanish government, to formally request financial assistance for the recapitalization of the Spanish banks that require it,” wrote Economy Minister Luis de Guindos, in a letter to Eurogroup president Jean-Claude Juncker. In a worst case scenario, Wyman found that Spanish banks would need between €51 billion and €62 billion in additional capital. Berger estimated the banks would need €51.8 billion. The auditors used stress tests similar to those conducted by the International Monetary Fund, which said last month that banks need to raise €40 billion. The Spanish government did not specify the exact amount it would need. The uncertainty around Spanish banks has raised speculation that Spain will need a bailout similar to those given to Greece, Ireland and Portugal. Investors are also worried about how Spain’s problems will impact Italy. The fear is that bailing out Spain would drain the euro area’s crisis resources and leave Italy without a safety net. The leaders of the four biggest eurozone economies agreed Friday on a plan to boost economic growth in the troubled currency union. Without going into detail, the leaders said they agreed on a set of growth-enhancing policies equal to about €125 billion, or 1% of eurozone gross domestic product.

Spain's GDP is bigger than Greece, Ireland, and Portugal together.  Spain very well could be the Eurozone's Tipping Point into collapse. 

Eurozone epidemic meltdown: Spain in emergency crisis, Danish banks downgraded

From The Extinction Protocol.  Excerpts:


Spain in emergency crisis: “We’re in a situation of total emergency, the worst crisis we have ever lived through” said ex-premier Felipe Gonzalez, the country’s elder statesman. The warning came as the yields on Spanish 10-year bonds spiked to 6.7pc, pushing the “risk premium” over German Bunds to a post-euro high of 540 basis points. The IBEX index of stocks in Madrid fell 2.6pc, the lowest since the dotcom bust in 2003. Chaos over the €23.5bn rescue of crippled lender Bankia has led to the abrupt resignation of central bank governor Miguel Ángel Fernández Ordóñez, who testified to the senate that he had been muzzled to avoid enflaming events as confidence in the country drains away. Markets are on tenterhooks as Spanish yields test levels that forced the European Central Bank to respond last November with its €1 trillion liquidity blitz. “Nobody is short Spanish debt right now because they are expecting ECB intervention,” said Andrew Roberts, credit chief at RBS. “If it doesn’t come — if we take out 6.8pc — we’re going to see a hyberbolic sell-off,” he said.
And:
Mr Roberts said the collapse in Spanish tax revenues is replicating the pattern in Greece. Fiscal revenues have fallen 4.8pc over the last year, and VAT returns have slumped 14.6pc. Debt service costs have risen by 18pc. The country is caught in a classic deflationary vice: a rising debt burden on a shrinking economic base. “Once you get into such a negative feedback loop, you can move beyond the point of no return quickly,” he said.

It's not like one country's financial implosion stops or gets better--Greece, Italy, Portugal, and Ireland are still in bad shape--The focus just switches whenever new, horrible economic data is reported.  In hindsight, the multiple paths to economic Armageddon will become clear when they all become critical simultaneously.  Buckle up:  Here we go!

Spain in recession as austerity bites deep

Austerity is Stasis/Immovable Object.  Dynamic populations are Inertia/Irresistible Force.  There's definitely going to be more trouble before stability and growth returns.  Reuters.  Excerpts:

Spain sank into recession in the first quarter and economists said spending cuts aimed at meeting strict EU deficit limits, together with a reeling bank sector, would delay any return to growth until late this year or beyond.



It is the second recession in just over two years for the euro zone's fourth largest economy and comes as the government tries to convince investors it will not need outside aid to put its house in order.


The country is caught between pressure from its European peers to fix public finances and growing domestic resistance to austerity measures that have helped push unemployment to more than double the EU average.



Ratings agency Standard & Poor's added to the country's problems with a two-notch rating downgrade last week and on Monday it chopped the credit score of 11 banks.
..
"The wheels are very clearly coming off," Jefferies economist David Owen said. "It wouldn't surprise me to see a very significant decline in GDP both in the second and third quarters this year."

..
Spain's demand for electricity, a good indicator of the strength of economic output, fell for the eighth month in a row in April, the national grid operator said.



Spanish bonds showed little reaction to the GDP report but yields have risen to around 6 percent in recent weeks. At around 7 percent, they are seen as financially unsustainable.


The IBEX share index finished April down 12.7 percent, its worst monthly showing in nearly 1-1/2 years..

The real problems haven't even begun.  Spain and Greece are just the opening act.  Followed by, in no particular order, Portugal, Italy, and Ireland.  The others(E.U. and non-E.U.) will also be sucked asunder, victims of Austerity's implosion wave.  How much pressure can France, and ultimately Germany, withstand? 

The E.U.'s individual country/collective state implosion illustrates the concept of Immovable Object/ Irresistible Force:  I'm unsure of the outcome, but the Victor will soon be known by all.  These circumstances, at present, cannot sustain.  There will be no dispute after this head-on, high-impact event.

Spain is About to Enter a Full-Scale Collapse

Be..  What's Spanish for afraid?  Be that.  Zero Hedge.  Excerpts:

Spain is about to enter a full-scale Crisis.


A few facts about Spain:
• Total Spanish banking loans are equal to 170% of Spanish GDP.
• Troubled loans at Spanish Banks just hit an 18-year high.
• Spanish Banks are drawing a record €316.3 billion from the ECB
(up from €169.2 billion in February).


Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: €65 billion left the Spanish banking system in March 2011 alone.


As bad as they are, even these data points don't do justice to the toxic sewer that is the Spanish banking system.


Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.


If you're unfamiliar with the caja banking system, let me give you a little background...


Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.


So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes the one that happened in the US look like a small bump.

Aye carumba..

For Europe’s Future, Spain Is All That Matters

Another great analysis from Gonzalo Lira. Excerpts:

If I had to bet on which country will bring about the end of the Euro—and perhaps even the end of the European Union—I’d have to say it’s Spain.

Right now, no one is talking about Spain—Spanish spreads are as quiet as a guilty man in a police line-up—everyone’s too concerned over Ireland, and the upcoming Portuguese Situation.

But Spain is the key—Spain is what you should be paying attention to, if you want to find out what will happen to the European Monetary Union (EMU), and the European Union (EU) itself.
And:
According to IMF numbers for 2009, the gross domestic product of Greece was $331 billion, Ireland was $221 billion, and Portugal was $233 billion—

—but Spain’s GDP in 2009 was $1.468 trillion. Roughly twice Greece, Ireland and Portugal combined. In other words, close to half of Germany’s GDP.
And:
Therefore, to bail out Spain, and plug up its fiscal balance sheet hole over the next three years would cost €450 billion—minimum. That’s about $600 billion.

Look at that number again—look at it closely, and take your time:

€450 billion.(600 billion US)

That’s twice the size of Ireland’s total GDP for 2009.

In order to figure out how much each party would have to shoulder of this €450 billion price tag, Bruce Krasting, in some private e-mail exchanges, thought that the percentages that the EU, the ECB and the IMF were shouldering for the Greek and Irish bailouts could serve as a template.

Fair enough: If we go by Greek and Irish percentages, then roughly a third of that €450 billion price tag to bail out Spain would be shouldered by the IMF—and as everyone knows, the U.S. puts up 20% of IMF money.

So the U.S. would be on the line for €30 billion—$40 billion—to save Spain.

Then Bruce delivered his verdict: “The U.S. is going to say ‘Yes’ to that and ‘No’ to California? No way. Not going to happen with this new Congress."
And:
Therefore, the IMF’s participation in a Spanish bail-out will be severely reduced, if not marginal. Therefore, bailing out Spain will be a strictly European affair.

Does Europe have €450 billion to bail out Spain? That is, does Germany have €450 billion to bail out Spain?

No it does not. It does not have the money for such a bailout—and even if it did, it does not have the political will to push through such a bailout.

Period.
And Finally:
Best case?

Though they remain in the European Union, the weaker economies exit the EMU and go back to local currencies, which they quickly depreciate, while their Euro-denominated sovereign debts are restructured and paid off over time. The Euro becomes the currency of France, Germany, Holland, Finland and Austria.

Worst case?

I can imagine a number of worst cases, all of them different, except for one thing in common: They’ll all be bad.